Cost reduction programs can save leading UAE banks between $35-50m

Dr. Dirk Buchta, Partner and Managing Director, A.T Kearney Middle East, comments:

"Leading UAE banks have the potential to reduce their costs by an average of $35m to $50m."

In spite of a low exposure to the subprime market, GCC banks are facing the effects of the global financial crisis. The interbank liquidity market has dried up, leading to short term financing difficulties, and profits are slashed by the decrease of investment banking revenues. Beyond the immediate challenges linked to the management of the liquidity crisis, operational efficiency will be a major factor of competitiveness according to A.T. Kearney.

"In the coming months, institutions that work on their fundamentals will be best positioned to take advantage of a new economic environment and will play a leading role in the foreseeable consolidation of the sector. To address the dramatic changes that the banking industry has started to experience, a comprehensive program focusing on operational excellence is required," comments Cyril Garbois, Principal with A.T. Kearney and expert in transformation programs.

A.T. Kearney believes the current crisis will bring an opportunity to local banks to implement measures which have been postponed for too long but which are necessary to ensure their competitiveness at the regional and global level. These measures include:
• Decrease in external spending, which can be achieved in a short period of time. A good sourcing program will reduce external spending by 10 - 20%.
• Outsourcing, this will become a structural priority for banks in order to realize immediate and sustainable cost savings. It can typically save between 25 - 40% on the related costs.
• Processes and organization rationalization, both at back and front office levels. This rationalization should aim not only at decreasing costs, but also at improving customer service, a key differentiating factor in the regional banking market.

A.T. Kearney has global experience working with major banks and has developed frameworks to support banks and other financial institutions with comprehensive programs including cost management, balance sheet optimization and risk management.

Garbois said, "Cost reduction and transformation are at the core of A.T. Kearney's financial institutions practice. We have supported a large number of banks over the last 10 years in restructuring their operations and in bringing them towards operational excellence."

"Through these programs banks can typically improve their cost structure by 15 - 20% and at the same time gain market share through the improvement of their commercial and marketing processes," explains Garbois.